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In
its latest bank supervision report, the Fed offered an upbeat
take on the strength of U.S. banks, noting they continue to
enjoy robust capital and liquidity levels, and asset quality
improved in the second half of 2021.
However, the central bank noted that the Russian invasion of
Ukraine has ramped up potential risk for the financial sector.
While U.S. banks' direct exposure to Russia is relatively
limited, there are several related factors that could weigh on
the industry, including volatility in commodity prices and
heightened cybersecurity risk.
The Fed said its supervisors will be closely monitoring banks to
see how they weather the turmoil coming from those heightened
geopolitical tensions.
Separately, the Fed also cautioned banks that offering prime
brokerage services to large investment funds carries with it
"significant risks." Citing the 2021 collapse of Archegos
Capital Management, which left a handful of banks with billions
of dollars in losses, the Fed noted that banks need to be on
strict guard if they wish to do business in the highly complex
and opaque area of the market.
"Strong risk management and controls are critical to the safety
and soundness of a bank that provides these services," the
report stated.
In December, the Fed warned banks, particularly those with large
derivatives portfolios and relationships with investment funds,
that they should not rely on incomplete or unverified
information from fund clients, and should consider not doing
business with firms that resist supplying the necessary
information to gauge risk.
(Reporting by Pete Schroeder; Editing by Chizu Nomiyama)
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